How To Pay For A Kitchen Remodel

A kitchen remodel can improve your home in multiple ways. With new flooring, countertops, fixtures and appliances, you'll feel happier and more comfortable in your kitchen while you're cooking meals and cleaning up the dishes, and you'll increase the value of your home, too.

Paying for a kitchen remodel takes some thoughtful planning, but it isn't difficult to do whether you have equity in your home or not.

If you own your home outright or your mortgage balance is less than your home's current value, congratulations. You have equity, and there are three ways you can use your equity to pay for your new kitchen.


The first way to finance a new kitchen with home equity is to get a new mortgage for a larger loan amount, pay off your existing mortgage and use the difference to pay the kitchen remodel cost. This strategy is called a cash-out refinance because you'll be refinancing your loan and taking out cash against your equity.

Your monthly loan payment might not change much or at all, depending on the repayment term and interest rate of your existing loan and your new one.

Home equity loan

The second way to use your home equity to finance a new kitchen is to get a home equity loan, also known as a second mortgage.

This loan might have a higher interest rate than your existing home loan, but the closing costs will be modest and the terms probably will be more favorable for you than a personal loan that doesn't depend on your home equity.

Like a cash-out refinance, a home equity loan gives you a large sum of money that you can use to pay for your new kitchen all at once rather than possibly having to do the project in smaller stages over a longer time.

Home equity line of credit

home equity line of credit or HELOC is the third way you can tap your home equity to pay for your new kitchen.

A HELOC is a line of credit that lets you borrow the money either all at once or as you need it over time. This flexibility might be helpful if you plan to hire multiple contractors instead of one general contractor or if you want to do some or all of the work yourself and need to buy your own tools and materials.

Personal loan or line of credit

If you have equity in your home, a cash out refinance, home equity loan or HELOC can enable you to borrow a sizable sum for your kitchen remodel project.

If you don't have equity or your kitchen just needs a little refurbishing rather than an all-out major remodel, a personal loan or personal line of credit can be a good option to pay the cost.

A personal loan or line of credit works essentially the same way as a home equity loan or HELOC. The biggest difference is the home equity loan or HELOC is secured (i.e., backed or guaranteed) by your home while the personal loan or line of credit is unsecured.

You never need equity or another asset to get a personal loan. Because the loan or line is unsecured, the interest rate likely will be higher than a home loan.

Regardless of which type of financing you prefer, it's always smart to shop around and compare all your options. Choose the loan that best fits your needs and you'll soon be enjoying the brand new kitchen of your dreams.

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